The company believes that it might have some inefficiencies in its inventory man
ID: 458525 • Letter: T
Question
The company believes that it might have some inefficiencies in its inventory management process. Develop an ABC classification system for the following 10 items. Based on this information, what do you recommend for improving inventory management?
Item
Annual Demand
Cost/Unit
I5
1750
10.00
D1
6000
10.00
A2
3000
50.00
E9
1000
20.00
J8
2500
5.00
C7
1500
45.00
B8
4000
12.00
G2
300
1500.00
H2
600
20.00
F3
500
Item
Annual Demand
Cost/Unit
I5
1750
10.00
D1
6000
10.00
A2
3000
50.00
E9
1000
20.00
J8
2500
5.00
C7
1500
45.00
B8
4000
12.00
G2
300
1500.00
H2
600
20.00
F3
500
Explanation / Answer
In ABC analysis , the inventories are classified into three categories, A, B, and C
The A category items are 20% of items accounts for 70% of total consumption values
The B category items are 30% of items accounts for 25% of total consumption values
The C category items are 50% of items accounts for 5% of total consumption values
Lets considers the items on the basis of percentage of consumptions to the total ans their total consumption values percentage. The work is done in Excel
Percentage of consumption = (Annual demand of item/ Total Demand)*100
Percentage of consumtion = (Money value spend on purchase of an item/ Total money value spend all item )*100
Item Annual Demand Percentage of consumptions Cost/Unit Total Cost Percentage of Total Cost Category I5 1750 8.4745763 10 17500 2.089552239 B D1 6000 29.05569 10 60000 7.164179104 C A2 3000 14.527845 50 150000 17.91044776 B E9 1000 4.842615 20 20000 2.388059701 B J8 2500 12.106538 5 12500 1.492537313 C C7 1500 7.2639225 45 67500 8.059701493 B B8 4000 19.37046 12 48000 5.731343284 C G2 300 1.4527845 1500 450000 53.73134328 A H2 600 2.905569 20 12000 1.432835821 B Total 20650 837500